III.4 The long twenty-first century

III.4 The long twenty-first century

An imperial age, then, rather than a republican age. One must understand by this not only that the question of the control of power is posed in new terms, but also that the organization of the world is changing in nature. The idea of a universal republic, the legacy of the institutional age, has no sense, because a “body politic” that would come close to the universal would be the very negation of politics, as we have defined it since the world existed. The idea of a universal empire, in the sense in which the Roman empire attained a sort of universality, better describes the reality of the networked world. (Jean-Marie Guéhenno 1995: 56)

III.4.1 Symptoms of the beginning of an SCA

Exterior signs that mark, in general, the beginning phases of systemic cycles of accumulation (confer sections II.3.1 and II.3.2) can be observed nowadays. This section will briefly enumerate some of them, mostly already mentioned in section III.2.

The single most important factor in defining the beginning of an SCA is the start of a material expansion phase (MC) based on a new strategic commodity as part of an important innovation in production or trade. In the 1980s, US business alone invested more than one trillion dollars in information technology, however, that was not translated in increases in productivity. This changed in the 1990s, when the so-called ‘productivity paradox’ disappeared, with the highest productivity increase in two decades leading to the first US productivity-driven recovery since the 1960s (Rifkin 1995: 91-92). The reason is that the new technology was being used within old (vertically integrated) organisational structures that were not able to accommodate it. A new form of business organisation was needed:

The Internet is turning business upside down and inside out. It is fundamentally changing the way companies operate, whether in high-tech or metal-bashing. This goes far beyond buying and selling over the Internet, or e-commerce, and deep into the processes and culture of an enterprise. (Mathew Symonds in The Economist 26 June 1999: A Survey Business and the Internet p. 5)

This reorganisation, in lines that we will study in section III.4.2, happened first in smaller, flexible organisations, but is now spreading to the large TNCs of the US SCA: “We are not witnessing the demise of powerful, large corporations, but we are indeed observing the crisis of the traditional model of organization based on vertical integration”[25] (Castells 1996: 156). In what is a typical MC expansion, financing becomes less important than knowledge, that is, investing in the new sectors that lead to large-scale profits (Arrighi 1994: 8).

The new regime of accumulation has grown in the interstices of the old one by meeting individually tailored demand, that is, by creating and satisfying a multitude of niche markets that were not catered for the by large US SCA corporations. This process of opening up new markets[26] resulted in demand for different inputs and consumption of new outputs, which is one of the components involved in restoring the rate of return to high levels. The second one is to increase the pool of available labour, which at first sight did not happen, again due to the lack of an – impossible – major geographic expansion. However, one of the consequences of ICT is to decrease the need for labour[27], which means that the relative amount of available labour has increased, with similar effects.

The second most important factor in defining the beginning on an SCA is the establishment of a new international political consensus, that is, a stabilising political framework. This has been tentatively achieved during the interventions in the terminal crisis wars of the US SCA, that is, the humanitarian, peace-keeping, but mostly the peace‑making interventions in Kuwait, Bosnia, and Kosovo. This is based on the declared primacy of human rights above the rights of sovereignty of nation-states, to be implemented through supra-statal organisations such as the UN and the International Court of Justice, and including the IMF, the World Bank and the World Trade Organisation (WTO), that define the new economic neo-liberal consensus (Brown 1997). These organisations could be considered as constituting a world government (Arrighi 1994: 331), which it should be however clear that they are not, at least in the traditional sense of the word, as they do not have the social functions of governments, besides having very limited representativity of, and close to no accountability to, populations.

Jeremy Rifkin describes the post-Fordist production and managerial system that arose in the 1980s (Rifkin 1995: 90-106). In craft production, skilled artisans make products, using hand tools, to the specifications of the customer. In mass production, skilled professionals design products and production processes carried out by unskilled workers using highly expensive single-purpose machinery. ‘Lean production’, pioneered by Toyota, combines the advantages of both, avoiding the costs of the first and the rigidity of the latter. This is achieved by doing away with the traditional managerial hierarchy and replacing it with teams of multi-skilled workers that work together with the machines, that they can use to make different products. Separation of mental from physical activity is abandoned in favour of a co-operative team approach, where work teams at the factory floor are given much latitude over the production process. Continued change and improvements as part of the daily operations are encouraged. This is backed up by providing the workers with access to all the computerised information they need.

Lean production is combined with ‘just-in-time’, or stockless, production, in which the workers get the parts they need in the quantity and in the moment they need them. The whole process is controlled by increasingly sophisticated computer information technologies to create automated factories with few, but highly (multi) skilled, workers, whose activity is as cerebral as physical as they interact not only with the machines but with the information technologies (IT) required.

The result is a much greater efficiency compared to Fordist production and management. The same output can be reached with less factory space, less consumption of inputs, cheaper tools (because they can be shared with other production processes), faster design times (because as workers at all levels have been involved in the process, bottlenecks not considered by the designers are avoided), less down-time (because the workers can also repair the tools or at least recognise problems), less defects, faster turnaround times, faster switching time from one product to another, and less labour.

The emphasis of lean production “on ‘process’ rather than ‘structure and function’, made Japanese manufacturers ideally suited to take advantage of the new computer-based technologies”. However, “[b]orrowing from the Japanese model of lean production, American and European companies have begun to introduce their own changes in organizational structure to accommodate the new computer technologies” (Rifkin 1995: 100). This ‘re-engineering’ meant that TNCs themselves have changed their organisational model[29], flattening organisational pyramids (and doing away with whole layers of middle management in the process), creating horizontal organisations (Ostroff 1999), and transferring responsibility to networks and teams that can work together and co-ordinate decisions, by-passing inter-departmental communication inefficiencies. These teams can also be formally independent (out-sourced) companies. Each unit is a much more homogeneous entity than traditional enterprises or (large) departments, as it becomes a sub-unit of a wider process[30]. For instance, a law firm can consist solely of lawyers, contracting out other activities such as secretarial, accountancy, or cleaning services.

The essential element is the use of computer-based IT, that allows information to be transmitted horizontally in a network at a much higher speed than up and down the hierarchical pyramid of vertical organisations. Each member of the network has at their immediate disposal all the information generated by all other members of the network, resulting in a much quicker response to requests while saving labour. “[C]omputers are providing needed information and helping to structure the coordination and flow of activity in the economic process, … eliminating jobs at every rung of the corporate hierarchy”. In this way, a “well-trained employee dealing directly with the situation can now make the decision faster and in a more responsive fashion than the remote manager miles away” (Rifkin 1995: 105).

This process is taking place not only at the intra-enterprise level, but at the inter‑enterprise one as well. Out-sourcing and sub-contracting, whereby companies contract with outside suppliers for goods and services traditionally handled in-house, creates regional networks of small enterprises, that in many cases constitute sub-units formerly integrated in a larger corporation[31]. Not only does this process cut labour costs and by-pass trade unions, it also gives the companies a much greater flexibility to meet changes in market conditions.

The internet is now starting to have what will perhaps be the greatest impact of ICT on business, helping companies to lower costs dramatically across their supply and demand chains (The Economist 26 June 1999: A Survey Business and the Internet). This is not so much due to e-commerce, whereby companies sell directly to their clients via the www, but by e-business, that is, making secure internet connections with their trading partners. A company can provide or request quotes, sell off perishable goods by auction, give instant information to suppliers about how each of their products is selling in each store, allowing them to tailor production to daily (or even faster) shifts in demand and ensuring the company never runs out of stock, deliver customised services to customers, all of this on-line and with minimum labour involved. The internet also allows a company to increase the number of suppliers, as the management of the complex network thus created can be done automatically via the www without any direct involvement by the company. Further, fixed prices can give way to rapidly changing prices reflecting the market conditions[32] and treating different customers differently.

All these innovations, that taken together could be called ‘flexible specialisation’, reduce uncertainty in transactions thereby lowering their cost, increase their speed, and reduce the need for labour, because they allow the creation of wealth unaccompanied by the creation of work (Santos 1998: 29). They are fundamentally based on ICT, which is then the strategic commodity of the EwE SCA. Not only it is per se a highly profitable and rapidly expanding business area, it enables efficiency gains all across the business chain. It also leads to fragmentation of society in multiple levels, as we will study in the next section.

Finally, although several of these innovations originated in Japan, they rapidly spread to the USA and Western Europe, which their very nature rendered inevitable. National borders have no influence in the spread of information via modern ICT, particularly with the large amounts of foreign direct investment (FDI) between the Triad of core regions leading e.g. to ‘European’ firms being owned by Japanese capitalists and bringing to Europe Japanese methods that are then copied and adapted by local capitalists. This adaptation is selective, and there is no convergence on a single organisational structure, with enterprises organising themselves differently along regional models (Castells 1996: 190-195).

III.4.3 Networks, fragmentation, and rules

We are entering into the age of open systems, whether at the level of states or enterprises, and the criteria of success are diametrically different from those of the institutional age and its closed systems. The value of an organization is no longer measured by the equilibrium that it attempts to establish between its different parts, or by the clarity of its frontiers, but in the number of openings, of points of articulation that it can organize with everything external to it. (Jean-Marie Guéhenno 1995: 49)

The network structure we discussed in the previous section brings about two issues, concerning the survival of individual cells in the network, and the management of the arising complexity.

Having multiple openings to the exterior is the best strategy of survival in a network. What happens to a company when its sole supplier or its sole client disappears? It must disappear as well. However, there is an inherent difference between cells: “horizontal is not the same as flat” (Ostroff 1999: 58). Cells involved in high-value added (core) processes, or protected by their belonging to a large TNC (which are anyway likely to retain only high-value added activities), have a special position in the network, because their services and talents are likely to be rare. Units that perform the low-added value (peripheral) activities are likely to be numerous and engaged in strong competition to supply the core cells. In a situation where very few firms collectively dominate the market (e.g. in foodstuffs retailing), the suppliers and clients have no-one else to do business with, that is, they cannot have multiple connections, and are therefore vulnerable. For the network as a whole, however, the survival or otherwise of most individual cells is irrelevant. This will have important consequences in defining a new emerging core‑periphery structure as we will see in section III.5.

The most important element required for the management of the emerging complex structures is “to manage identities and ensure the compatibility of these identities with other identities” (Guéhenno 1995: 64), that is, to ensure the smooth communication between cells of the network. This is done through the existence of a framework in which the procedures of connection between cells obey clear and predictable rules. The harmonisation of regulations internal to a TNC, or indeed to a nation-state, is required to facilitate transactions (Guéhenno 1995: 58-59). This standardisation of norms does not require uniformity, on the contrary, it is compatible with extreme diversity of products and services, as long as they can interface with each other smoothly[33]. Hence economies can become more integrated without converging in the way they do business (Gray 1998: 60).

Traditional regulation forms (public ownership, state-defined regulations) are consequently being displaced by regulation by ‘independent’ expert agencies[34] as well as to levels above the nation-state, for instance the European Union (EU) in Europe[35] (see section IV.2.1):

Little by little, this transformation will reduce to the same level rules emanating from processes that are still provisionally called political and those that result from the concerted action of enterprises. It matters little whether a norm is imposed by a private enterprise or by a committee of bureaucrats. It is no longer the expression of a sovereignty but simply something that reduces uncertainties, a means of lowering the cost of transactions, of increasing transparency. (Jean-Marie Guéhenno 1995: 85)

The Empire without Emperor of norms and regulations thus encroaches on the sovereignty of nation-states. This is related to what is often referred to as ‘globalisation’, as will now see.

III.4.4 Nation-states and ‘globalisation’

‘Globalisation’ is a catch-all word that is made to mean many different things by different people. According to John Gray (Gray 1998: 55-60), it involves the spread of ICT across frontiers; it involves de-localisation, that is, uprooting of activities that were hitherto bound in local societies and cultures, and displacing them to networks of relationships with distant regions; it means (ex-)socialist and traditional societies cannot delink from the world system, except at high social and economic cost; it is not a trend towards homogeneity as it thrives on the world-wide division of labour and markets; neither it is an end-state towards which all economies converge, on the contrary it increases uneven development (Beer 1999).

The main consequences for the nation-states are due to the shift towards information, communications, and intellectual property as main economic resources where most added value is concentrated, and away from raw materials, energy, and labour. While the latter can be easily subject to the territorial control typical of states, including their procurement, disposal, regulation, taxation, defence and conquest, the former can not (Rifkin 1995: 236-237).

World-wide mobility of capital triggers a competitive downgrading of both regulatory and welfare systems (Gray 1998: 79, Guéhenno 1995: 10-11). TNCs are not spatially bound nor accountable to any given locale, which gives them the flexibility to move production and markets from nation to nation (or indeed region to region)[36]. They can choose locales with e.g. the most favourable labour or environmental regulations. The same is true for taxation, leading to less governmental resources and a decrease in the provision of social benefits[37]. The TNCs thus become quasi-political organisations, that can effectively influence national policies (Strange 1996: 44-65).

Not only are states seen as being unable to control the economic process within their own borders, the very desirability of such control is questioned. Advocates of the free market insist that its legal framework must be placed outside the reach of democratic legislature. While John Gray has called this project “an unrealizable fantasy” (Gray 1998: 18), the Multilateral Agreement on Investment (MAI) negotiated by the OECD[38], hailed as the ‘constitution of the global economy’, would have given TNCs the right to sue national governments (but not the other way around) for breach of its terms and force national legislation to be changed (Sforza-Roderick 1998). While the MAI would be a legally binding international treaty, TNCs insisted that the multilateral instruments negotiated under the framework of the UN to set standards on behaviour and obligations of foreign investors should all be non‑binding and voluntary (Ganesan 1998: 6).

However, it has been shown that ‘globalisation’ is far from complete, as only the financial market is truly global[39] and almost all TNCs are still home-based (Hirst 1997a, Dent 1997: 234), and that states (depending on their internal organisation and traditions) can retain considerable power over national economic policy (Weiss 1998): “free markets are creatures of state power”, and “laissez-faire must be centrally planned”[40] (Gray 1998: 17). Paul Hirst asserts that the disappearance of the threat of revolutionary socialism, together with the disappearance of war between core countries removed the elites’ motivation to sustain social democracy and the social welfare state (Hirst 1997b: 1).

‘Globalisation’, as embodied by the global free market, has then the ideological and political role of reinforcing the view that nation-states have no options (Gray 1998: 64), and is related to the triumph of the Washington (liberal) consensus, characterised by (Santos 1998: 25-28):

– Desirability of weak states. States are not the mirror of civil society but the cause of their weakness, and hence their frontiers should be ‘rolled back’.

– Economic policy should be determined by the free market. The states become subordinate to the economic agents such as transnational companies (TNCs), international investment banks, and organisations such as IMF, World Bank, WTO, GATT.

– States should be liberal democracies. This leads to the international promotion of a minimalist concept of democracy, that does not include e.g. social rights of workers, as condition of access to international capital.

– Primacy of law and of the judicial system, with priority given to protection of private property. The social contract as political foundation stone gives way to the judicial foundation stone – the individual contract. The state loses investment and redistributive functions to concentrate on defining a legal framework, increasingly regulated by independent agencies (Majone 1996), and enforcing it.

The states are still central, however, their functions have shifted, as they become sources of legitimacy to transfer power upwards to inter- and supranational agencies, and downwards to local governments and networks (while keeping a role in guaranteeing the rule of law and a degree of social cohesion) (Hirst 1997b: 239-244). “To reduce it to a formula: withering away plus reinventing equals metamorphosis of the state. … The authoritarian action state has given way to the negotiation state, which sets up stages and directs the show” (Beck 1997: 139-140). The evolution of the Westphalian inter-state system under EwE hegemony will be studied in the next section.

III.4.5 A new supersession of the Westphalian system

We discussed in section II.4.5 how during hegemonic transitions repeated violations of the Westphalian principles occur, and how the emerging hegemon restores the Westphalian system of states, while partially superseding it, such that in each successive hegemony the sovereignty and autonomous capabilities of states are reduced.

At the time of the fall of the Berlin wall, ‘fourth wave’ nationalistic claims intensified, with armed uprisings and secessions taking place in many parts of Europe (although concentrated in the ex-Soviet Union and in Central and Eastern European countries[41]), questioning the territorial integrity of several states[42]. The whole system of states seemed to be under threat, with parts of it disintegrating.

We argue that the inter-state system has already been reconstituted under the new EwE hegemony, and that the Westphalian structures have been restored. It now accommodates, in a relatively easy way, small-country nationalisms, and even (non-violent) regionalisms and separatisms in established core nation-states. The latter group is accommodated or pacified by resource transfers or half-measures such as regionalisation or partial devolution (Strange 1996: 5), which can also be used as a method of shedding responsibilities by states that are increasingly seen as inefficient and too remote from the public.

Aggressive nationalisms or separatisms, on the other hand, are controlled through the political stabilising framework of the new SCA, where human rights became a justification for intervention in a country’s internal affairs. This can take extreme military forms such as the Bosnian and Kosovo cases, but often it is done through ‘softer’ means involving political or economic pressure[43] (see sections IV.3 and IV.6).

The new supersession of Westphalia is then to elevate the rights of all subjects above the rights of sovereignty of states, including human rights and including non-core countries. The rights of nation-states to organise relations with their subjects thus suffered an unprecedented restriction. One can note that human rights, unlike civic, political and social rights, are independent of nationality, and therefore devalue national citizenship and the nation-state (Axtmann 1998b: 15).

‘Justified intervention in a country’s internal affairs’ as the normative element of international relations can be seen as constituting more than a simple supersession of the Westphalian inter-state system. Guéhenno argues that 1989 marked the end of the age of the nation-states[44] (Guéhenno 1995: x). From this point of view, and even taking into account that nation-states will still remain important and highly visible elements, the EwE ‘permeating’ SCA is qualitatively different from previous ones. It marks the beginning of a meta-systemic transition in the world system, just as the ‘discovering’ double cycle (Genoese+Dutch SCAs) was a meta-systemic hegemonic transition from the East to the West (see section II.3.8).

This meta-systemic transition is not, however, a transition back to the East, but to the non-territorial hegemony described in this chapter. In other words, (segments of) the East are again rising, but (segments of) the West are not declining.

[25] Lou Gerstner, the boss of IBM, claimed that the real revolution in productivity and profits will come not from small dynamic enterprises but when the large established corporations “seize the power of this global computing and communications infrastructure and use it to transform themselves”. He added that IBM’s e-business-related sales amount to $80 billion, which compares to the $5 billion generated collectively by the 25 largest internet firms (The Economist 26 June 1999: A Survey Business and the Internet p. 42-44). It was the TNCs that are farthest in this process that recovered the quickest after the Asian crisis of 1998 (Sharon Smith in Socialist Review January 1999 p. 15).

[26] Again, this ‘opening up’ is partially non-geographic, as the new markets are mostly located in traditional core zones and no significant geographic expansion occurs. It nevertheless can be seen as an enlargement of the foundations of the capitalist system.

[27] At least for unskilled labour in the core, for which demand has been estimated to have decreased by about 20% between 1960 and 1990 (Castells 1996: 237).

[28] Now that IT indeed allows production to combine manufacturing processes that are much more decentralised, the bringing together of constituent parts becomes much more flexible than in the era of mass production. It is from now on possible to use a multitude of sub-contractors to manage one’s accounts, the design of one’s products, and so on. A process of segmentation of markets, products and individuals is irresistibly established. Each production unit becomes a homogeneous sub-unit of a much wider process (NPB translation).

[29] In fact it is claimed that large TNCs can handle the new organisational structure better than highly fragmented and decentralised networks, as long as they use adaptability as well as flexibility, meaning TNCs must be able to respond quickly to the myriad of external inputs they receive, by working with the networked units in real time (Castells 1996: 166). The EwE SCA will “only on the surface be a period of large organizations … having undergone the apprenticeship of complexity and multiple identities” (Guéhenno 1995: 65).

[30] For instance, French firms with more than 10 employees became 20% more homogeneous between 1986 and 1992 (Cohen 1997: 77).

[31] In other instances, they remain formally attached to the large corporation but effectively work as a self-standing unit, in competition with other units of the same enterprise.

[32] Even weather conditions. Coca-Cola is already testing vending machines that change the price according to the temperature (The Economist 26 June 1999: A Survey Business and the Internet p. 14).

[33] This is the case in the European Union where mutual recognition of official (i.e. defined by the governments) and technical standards (i.e. defined by the industry) cuts through the maze of national regulations (Swann 1995: 168-172).

[34] For instance, in Europe one such agency is the European Central Bank, that has the power to make regulations that become European Union and member-state law without involvement of the executives of the member states or of the European or national parliaments (Majone 1996: 2-3).

[35] Thus the EU can be seen as a “regulatory state” (Majone 1996b: 63) or as a “legal and regulatory federation” (Bideleux 1997: 11), in the sense that the majority of national laws, policies and regulations conform to EU norms and standards; this concurs with the interests of TNCs and export-oriented firms (Majone 1996b: 55, Bideleux 1997: 17-18).

[36] This is different from saying that TNCs no longer have connections to specific locales; they do, as it is advantageous to be inserted in a strong home network, and about 2/3 of TNC assets and sales are in their home countries (Gray 1998: 63). However, TNCs can and do move when it suits them.

[37] This could be avoided by concerted action amongst governments, but there would then be a strong incentive for each individual government to reduce its own levels and standards of taxation and regulation. The question of what is the necessary size of an association of governments such as the EU to be able to impose its conditions (or at least negotiate favourable terms) to the TNCs is open. The question of whether such an association would desire to do so as well.

[38] In secrecy and without public consultation were conducted, by OECD governments’ representatives (Guy de Jonquieres in Financial Times 30 Aril 1998). The MAI was abandoned after grass-roots movements led the French National Assembly to withdraw from the negotiations. It is however planned to force it through WTO, again in secrecy, by the end of this year (Le Monde Diplomatique, Portuguese edition May 1999: 14-15).

[39] Even this excludes whole regions from the ‘global’ world, such as sub-Saharan Africa that has at most a weak participation in the financial market.

[40] It would then be preferable to speak about an ‘internationalised’ economy, where national policies would still be important to preserve the strength of nationally-based TNCs, instead of a ‘globalised’ one, where there would be a free market, free from any institutional or locational restraints (Weiss 1998: 169-170).

[41] Nationalistic claims with origin in the late 1960s included Northern Ireland, the Basque Country, Flanders, French-speaking Switzerland and many others, as well as extra-European regions such as East Timor and other regions attached to Indonesia, or the Kurds (McGarry 1993a, Smith 1991: 125). This gave rise to a large literature on nationalism and ethnicity, often related to the posited withering away of the nation-state.

[42] This had been preceded by other violations of the Westphalian principles, e.g. in the US intervention in the Vietnamese civil war or the Soviet intervention in Afghanistan.

[43] Or both, such as withholding the prospect of EU accession in the case of the Baltic countries (Estonia and Latvia) with significant Russian minorities discriminated against by the new governments (Emerson 1998: 71).

[44] Which he considers to have been institutionalised with the French Revolution, in 1789, that in the scheme presented here is in fact the first supersession of the Westphalian system.